The Reserve Bank of India (RBI) will leave its key interest rate unchanged at 6.50% on June 8 and for the rest of 2023 as it waits to see the economic impact of a series of hikes over the past year, a Reuters poll of economists found.
Despite hitting an 18-month low of 4.70% in April, inflation was not expected to fall to the RBI’s 4% medium-term target for at least another two years, suggesting rate cuts are unlikely in the immediate future, it said.
All 64 economists in the poll taken between May 16 and 29 expected no change to the 6.50% repo rate at the conclusion of the RBI’s June 6-8 meeting.
Also Read: India’s GDP Projected To Grow 6.5% In FY24, Domestic Economy Resilient: RBI
Median forecasts showed the rate has already reached its peak and will stay there for the rest of this year, lower than the 6.75% terminal rate predicted a few months ago.
“Apart from the food price risks, the outlook for inflation looks to be improving … absent any sharp upside surprises, there is little or zero probability of further rate hikes by the RBI,” wrote Dhiraj Nim, economist at ANZ.
“Yet a pivot from their hawkish stance may take longer since inflation is still far above the 4% target, which means the real repo rate is still accommodative.”
Among those who had a longer-term view on rates, more than two-thirds of respondents, or 39 of 56, expected rates to remain unchanged until the end of the year.
A quarter of respondents, 14, predicted the repo rate to be 6.25% or lower by then. Three forecast one more hike next quarter to 6.75%.
But by the end of the first quarter next year, more than two-thirds of economists who had a forecast, or 27 of 40, predicted the rate at 6.25% or lower.
Among the remaining 13 respondents, 12 predicted the rate would remain at 6.50%, while one said it would be 6.75%.
Looking further out, median forecasts from a smaller sample showed the RBI would gradually reduce the repo rate next year, reaching 6.00% in the second quarter, then to 5.75% in the third quarter and 5.50% by end-2024.
Moreover, global forecasting firm Oxford Economics on Monday said the RBI may cut key benchmark policy rate in the fourth quarter of the current calendar year as a mix of factors will allow the central bank to shift focus and adopt a more accommodative policy stance sooner.
It further said inflation has already begun easing, and consumer inflation expectations are falling, so attention has shifted from estimating the peak level of the current hiking cycle to the timing of rate cuts.
The RBI has been tasked to ensure retail inflation remains at 4 per cent (with margin of 2 per cent on either side).
In April, the Reserve Bank in a surprise move hit the pause button and decided to keep the key benchmark policy rate at 6.5 per cent.
Prior to it, RBI was on a rate hiking spree, raising the repo rate by 250 basis points since May 2022.
Last week, RBI Governor Shaktikanta Das had said inflation has moderated, and the next print is expected to be lower than 4.7 per cent though there is no room for complacency and the war on inflation will continue.
Retail inflation fell to an 18-month low of 4.7 per cent in April, mainly due to cooling food prices.
Meanwhile, according to the RBI’s annual report 2022-23 released on Tuesday, India’s GDP growth for 2023-24 was projected at 6.5 per cent amid softer global commodity and food prices, and good rabi crop prospects, among others. It said that domestic economic activity does face challenges from an uninspiring global outlook going forward, but resilient domestic macroeconomic and financial conditions expected dividends.
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